Rising Tide at eBay

The conventional wisdom that investors should avoid e-commerce companies in favor of Internet media names hasn't panned out lately.

In fact, shares of eBay ( EBAY) and Amazon ( AMZN) each rose more than 17% in August. Though both stocks are down substantially for the year, last month they outperformed Google ( GOOG), which rose less than 1%, and Yahoo! ( YHOO), which gained 7%.

Another e-commerce stock, IAC/InterActiveCorp ( IACI), the parent of the HSN cable-shopping channel, jumped 13%. During that same period, the Nasdaq Composite index jumped 5.9%.

This may signal a change in fortune for these stocks, which still are out of favor with analysts, who caution against reading too much into these price moves. Indeed, eBay and Amazon are both down more than 30% this year, while IAC is little changed.

"There is a price where any stock becomes attractive, especially ones with powerful brand names and significant share," says Darren Chervitz of Jacob Asset Management, which owns shares of Google, Yahoo! and eBay among its $75 million in assets under management. "If the consumer stays healthy, then we are entering the best months for these companies. The stock prices usually anticipate that."

Though the growth of e-commerce is slowing, it's still pretty strong. JupiterKagan estimates that online retail sales will reach $95 billion this year, up 18% from last year. That compares with a 4.7% jump in overall retail sales projected by the National Retail Federation.

Though this is good news for eBay and Amazon, the impact for IAC is difficult to determine, given its huge range of businesses, including TicketMaster and the Ask.com search engine.

"We might see strong holiday sales from these two names in particular," says Tim Ghriskey, chief investment officer of Solaris Capital Management, who follows the Internet sector, referring to Amazon and eBay. "Internet retailers should continue to gain market share."

Still, Ghriskey, who manages more than $1 billion, says these stocks may face some tax-loss selling in September and October.

IAC shares have been boosted by a better-than-expected second quarter and bullish comments Chairman Barry Diller has made about the struggling HSN business.

eBay, the largest Internet auction site, has gotten positive attention from its advertising partnerships with both Google and Yahoo!. Google's online payment system, which analysts say posses a threat to eBay's PayPal business, also has been hurt by technical glitches that have annoyed some retailers.

At eBay, "People are hoping that the bar has been set low enough that they make their number this quarter," says Mike Binger, who helps manage $1.5 billion for Thrivent Financial, including shares of the largest Internet auction site. "If they do, the stock is probably in the low $30s." eBay rose 53 cents Tuesday to $28.68.

Wall Street continues to have questions about Amazon because of its narrow profit margins and its rising costs for services such as free shipping. Some Amazon moves have puzzled observers, including its move into the highly competitive grocery business. But there is some hope that Amazon's expected move into digital media will bolster growth at the Seattle-based company.

Despite the improved share performance, it's unlikely that investors will abandon their preference for Internet media.

IAC has only six analysts rating it a buy. Amazon has three, and eBay 16. To compare, Yahoo! has 24 buy ratings and Google has 31, according to data on Bloomberg.